A short-term loan is any borrowing that must be repaid within one year or less. These loans provide quick cash for immediate needs — paying suppliers, covering payroll, bridging cash flow gaps, or handling unexpected expenses.
Common types include working capital loans, overdraft facilities, trade credits, and payday loans. Business short-term loans might carry rates of 8-15% APR, while personal payday loans can charge 400%+ APR — making them one of the most expensive forms of borrowing.
Banks prefer short-term loans because they get their money back quickly and can re-lend it. For borrowers, the advantage is speed and flexibility — many short-term business loans are approved within 24-48 hours. The disadvantage: higher interest rates compared to long-term loans because the bank has less time to earn returns.